Correct Answer Explanation: 

When restrictions imposed by the client significantly impact the scope of the audit, the auditor is faced with the challenge of expressing an appropriate opinion on the financial statements. The correct answer is (a) Qualified opinion.

a. Qualified Opinion:

A qualified opinion is issued when the auditor concludes that, except for the effects of the matter(s) to which the qualification relates, the financial statements are fairly presented.

In the context of restrictions imposed by the client, a qualified opinion communicates that the auditor encountered limitations in conducting the audit but found no pervasive issues with the financial statements. This opinion is often accompanied by a qualified paragraph in the auditor’s report, explicitly addressing the nature and limitations of the restrictions.

When the client imposes restrictions that significantly affect the scope of the audit, it means the auditor was unable to obtain sufficient appropriate evidence to support certain aspects of the financial statements.

This lack of evidence might result from the client’s refusal to provide necessary information, access, or documentation. In such cases, the auditor cannot express an unqualified opinion because there is a limitation in the audit process.

Why the Other Options Are Not Correct:

b) Disclaimer of Opinion:

A disclaimer of opinion is issued when the auditor is unable to form an opinion on the financial statements as a whole. This typically occurs when the auditor encounters severe limitations that prevent them from obtaining essential evidence and understanding the financial statement assertions.

While restrictions imposed by the client may be significant, they might not necessarily render the auditor incapable of forming an opinion on the entire set of financial statements.

c) Adverse Opinion:

An adverse opinion is issued when the auditor concludes that the financial statements as a whole are materially misstated, and the misstatements are both pervasive and not appropriately disclosed. Imposing restrictions by the client, while limiting the audit scope, does not necessarily mean that the financial statements are materially misstated.

An adverse opinion is a more serious judgment that suggests fundamental problems with the accuracy and completeness of the financial statements.

d) Unqualified Report with ‘An Emphasis of Matter’ Paragraph:

An unqualified opinion is expressed when the auditor determines that the financial statements are presented fairly, without material misstatements. However, adding an “emphasis of matter” paragraph is a tool used to draw attention to a matter that is already adequately disclosed in the financial statements.

It is not typically used to address limitations imposed by the client. If the auditor includes such a paragraph, it is usually to highlight a relevant event or condition disclosed in the financial statements.